How Americans earn their income

To me the most interesting part of our new annual report is the deconstruction of personal income. Looking at the components that make up per capita income.

In previous reports we have focused almost exclusively on jobs and income that comes from employment—both public and private. The data is clear: we are in an era of long-term structural shift of jobs and employment earnings toward knowledge-based industries and occupations. The states and regions that align with this trend will benefit greatly.

But it is also clear that there are other ways in which residents of states and regions earn income. Employment earnings are a major, but not the only, components of personal income. And that other income benefits not only individuals and households, but the whole community, as folks spend their income.

We decided that we could provide a more complete picture by looking at all components of what makes up personal income. It is clear that some states have achieved high prosperity because of high energy prices. So in the new report we look at employment earnings from three sources: natural resources (mining, agriculture, forestry, and fishing) private sector employment earnings; all other private sector employment earnings; and government employment earnings (which along with local, state, and federal government includes public school districts, public universities, and colleges). In addition we look at investment income from interest, rent, and dividends; transfer payments, and adjustments due to social insurance taxes and people living in one jurisdiction and working in another.

In this post we will focus on how Americans earn their income. In future posts we will do the same for Michiganians and the residents of the states three biggest metropolitan areas: Detroit, Grand Rapids and Lansing. I think you will find the data compelling and surprising. I know we did.

Per capita income for the country in 2009 was $39,635. By major components it was:

Private sector employment earnings $23,427

Government employment earnings $5,233

Dividends, Interest, Rent $7,143

Transfer payments $6,984

We also looked at per capita income growth between 1989 and 2009 corrected for inflation. Over that 20 year period real per capita income grew by $7,797. An increase of 20 percent. By component the twenty year growth was:

Private sector employment earnings $3,513

Government employment earnings $922

Dividends, Interest, Rent $720

Transfer payments $3105

As you can see, transfer payments have been a major source of real personal income growth over the past two decades— accounting for 40 percent of the country’s personal income growth, nearly as large as the 45 percent share of growth in private sector employment earnings growth.

In 2009 72 percent of American’s personal income came from employment earnings (59 percent from private employers and 13 percent from government employers.) Transfer payments were nearly 18 percent. And if you combine transfer payments and government employment earnings, you find that 31 percent of national personal income is paid for with government revenue. Twenty years earlier employment earnings were 77 percent of personal income (63 percent from private employers and 14 percent from government employers.) Transfer payments were 12 percent. And personal income paid for with government revenue was 26%.

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.